Robert Hugh Thomas Davies v Ian Watkins (2012)

Summary

A judge had been wrong to approach the costs of a Beddoe application as if they were costs in ordinary litigation. The normal rule on the costs of an application for directions was that, absent improper conduct, the costs of a trustee would be paid out of the trust fund.

Facts

The appellant executor (D) appealed against a decision that he was not entitled to take his costs of proceedings out of the estate of the deceased and that he pay the costs of the first respondent (W) out of his own assets.

D was the executor of W's mother's estate. She died in 2005 and left her share of a company to her three sons in equal shares. W held the other share in the company. The company's articles of association did not contain a provision enabling D to require W to purchase the share from the estate so it was difficult for D to realise the bequeathed share. In 2007 W made a without prejudice offer of £125,000 to each of his brothers for their respective interests in the share but it was rejected. In 2008 D sought directions on how to deal with the share issue. The claim was brought under the principles in Beddoe, Re [1893] 1 Ch. 547. D made an offer to purchase the share and, following a hearing, a consent order was agreed. In 2011 W applied to have the date for the share's valuation determined. Judgment was given in favour of W and the share was valued at less than £6,000. The judge held that it was inappropriate for D to get his costs from the estate as he had not sent a pre-action protocol letter and he should have engaged with W's first offer.

D submitted that the pursuit of proceedings had been reasonable and fully justified in that it had prompted W to make an offer that eventually led to the consent order.

Held

The normal rule on the costs of an application for directions was that, absent improper conduct, a trustee's costs would be paid out of the trust fund. The judge was wrong to approach the case as if it were costs in ordinary litigation. The court had to start from the special position of a trustee's application for directions, with the special rules and practice that apply to such proceedings. The judge erred because he overlooked the special nature of the Beddoe proceedings, Beddoe followed. CPR r.48.4was relevant to the instant case as was the Costs Practice Direction para.50A.1 and 50A.2. When D applied for directions as to what he should do with regard to the share in the company, he was following the general guidance given consistently by cases and he could expect to be entitled to an indemnity for his costs of making the application out of the residuary estate unless he was found to have acted improperly in making the application. W's first offer had not been in satisfactory terms and a negotiated solution had not been reached. As regards the judge's criticism of D, there was no pre-action protocol which related to Beddoe applications so there was no default on his part and W had been given notice of the proceedings. Neither was the absence of a draft statement of case a legitimate criticism of D. The passage of time in D reacting to W's offer could not be regarded as improper conduct on D's part. The fact was that commencement of the proceedings led to W making a fresh offer which led without unreasonable delay to a compromise which resolved the problem. Nothing came near to satisfying the test for depriving a trustee of his indemnity for costs out of the fund. The judge's criticisms were not justified. His order was wrong in law and the result of an implicit misdirection. D was entitled to his costs of the Beddoe application from the estate (see paras 26, 28, 32-35, 37, 41, 43-46, 48, 52, 54 of judgment).